Banks challenged to explore low fixed cost models - MTI CEO
Responding to the 18 % credit ceiling imposed by the Central Bank,
MTI CEO Hilmy Cader says that banks and financial institutions will be
forced to re-examine their cost structures.
Hilmy Cader,
CEO MTI Consulting |
"Compared to many businesses, the business model of financial
institutions is based on extremely high fixed cost, with a very low
variable cost element.
In addition, over the last 3 years, the banks have loaded their fixed
costs, in response to the phenomenal credit growth.
All of this means, these institutions have a very high 'break-even'
point, which in the light of the credit ceiling and reduced savings will
force them to re-examine fixed costs," said Hilmy Cader.
He added, "For instance, the Colombo has four times more bank
branches than supermarkets! This is entirely fixed costs. Despite these
high fixed costs, most of these branches are headed by conventional
branch (admin) managers, instead of 'hungry' sales managers.
Banks are also saddled with too many layers in their organizational
structures, all of which would have been 'disguised' when there was
top-line credit growth.
Overall, the banks and financial institutions will now be forced to
pursue 'lean and mean' business models." |